April 04, 2012

Medicare Fraud: The Case of HHS Spending $77 Million to Find $7,591 in Fraud

According to a recent article from the Associated Press, “a computer initiative to stop fraudulent Medicare billing at the point of claims submission has so far been a disappointment.” Formally known as the Fraud Prevention System, the new screening technology was mandated by Congress. It's housed in the Baltimore area, and staffed by as many as 150 people.

The goal of the system is to allow Medicare to analyze large numbers of claims and spot patterns of potential problems. Does a storefront wheelchair retailer in Los Angeles, for example, have lots of customers in San Francisco, more than 350 miles away?

The system is supposed to issue an alert when something looks wrong so Medicare can investigate the claim before payment is sent out. That's critical because Congress has also directed Medicare to pay promptly, usually within 14 to 30 days.

Medicare awarded an initial $77 million contract for the new system to defense giant Northrup Grumman and a group of other companies. About $27 million has been spent out of a four-year budget that could reach $100 million. IBM is also a contractor.

Sen. Tom Coburn, R-Okla., has questioned whether Grumman has the financial services experience necessary to take the lead on the job.

To date, the computer system, which went online in mid-2011, had prevented exactly one bad claim by late last year. That totaled $7,591. Hoping for much better results, a disappointed Sen. Tom Carper, D-Del., says, "I wondered, did they leave out some zeros?"

Lawmakers had expected the system to finally allow Medicare to stanch a $60-billion-a-year fraud hemorrhage. Now they're worried that cautious bureaucrats lacking a clear game plan will compromise its performance. However, Medicare officials say that the holistic value of the system is far greater than that. "Suspending payments is only one way of stopping the money," said Ted Doolittle, deputy director of Medicare's anti-fraud program.

Doolittle, a former federal prosecutor, said the system has generated some 2,500 leads and identified 600 suspicious cases, some which may mature into major investigations. He noted that this is a new system, and that the use of predictive modeling doesn't exist on this scale in industry.

However, Coburn said he's not impressed even by the figure of $20 million or more in potential savings that Medicare officials point to. "If it is fully deployed, we ought to be seeing savings of $5 billion a month," he said. "It will be two to three years before we get an effective predictive system."

Consequently, several U.S. Senators sent a letter to Doolittle inquiring about the progress of the new program. In response to their letter, Medicare officials said screening technology is now being used to evaluate all Medicare inpatient, outpatient and medical-equipment claims before payment. But payment suspensions did not begin until December 2011 — nearly six months after the system was up and running.

When other benefits of the system are taken into account, such as cases referred to investigators and changes to payment software that result in automatic denial of suspect claims, the potential savings in the first six months of operation easily exceed $20 million, Medicare officials indicated in a Jan. 27 letter to Carper. However, officials now acknowledge they don't know how much of that money has actually been recovered.

Other experts point out that the mission of the new system was to stop bogus payments before they leave the Treasury's coffers, ending what's known as "pay and chase," where the agency automatically pays claims, even suspicious ones, and then reviews them weeks after the fact.

That can be a self-defeating way to do business. Law enforcement is usually several steps behind the fraudsters, who sometimes manage to flee the country with millions plundered from the government. The new computer system was meant to elevate Medicare's game, putting it in the same league as major credit card companies that can freeze accounts proactively.

"The whole idea for creating this technology was they were going to be able to end pay-and-chase," said Hank Walther, former head of the Justice Department's health care fraud division. "But we haven't yet seen evidence of its success."

In addition to the new technology, Medicare was also given broad authority to act on leads generated by the system, letting it ban suspicious providers or put a moratorium on allowing new suppliers in high-fraud sectors like medical equipment. But lawmakers question whether the program is taking full advantage of that.

Medicare has "got to explain to us clearly that they are implementing the program, that their goals are well-established, reasonable, achievable, and they're making progress," added Carper, chairman of a subcommittee that oversees federal financial management. "We're not sure if they've done those things."

The program pays 4.4 million claims a day, worth about $1 billion. Officials say specific standards must be met however, before a payment can be suspended. For example, there has to be "reliable information" that the payment is incorrect.

The U.S. Department of Health & Human Services and the Justice Department earlier this month touted a record-breaking recovery year. Fraud prevention and enforcement efforts led to nearly $4.1 billion in recovered judgments in fiscal year 2011, according to its annual report. During the announcement, HHS Secretary Kathleen Sebelius heaped praise on the new computer technology. "Now, just as your credit card company freezes your account when it's used to buy 10 flat-screen TVs in stores around the country, we have the technology to stop suspicious claims payments before they're sent out," she said.

Lawmakers say that Medicare has failed to set clear goals for the system, such as a realistic figure for how much it can be expected to save, and by when. Sen. Orrin Hatch of Utah, the ranking Republican on the Senate Finance Committee that oversees Medicare, says the number of cases being handled by private investigators that initially screen for potential fraud has stayed roughly the same since the new system was deployed.

"The fact is, the anti-fraud contractors were reporting similar, if not better, results prior to this new technology," said Hatch. "It's not giving taxpayers the biggest bang for the buck and we need to change that."

Medicare officials say it will take time. "We are really at the start of this program," said Doolittle. "It's not mature yet. The fruits are going to be produced over a period of years, perhaps even our lifetimes. We're already getting great results."

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What this anecdote illustrates is that people like to think of themselves as superior to their colleages. Unfortunately, that's where its evidentiary character is exhausted - and that's a bit of the problem. The real issue shouldn't be "bias due to industry sponsorship", but "scientific quality of the research".